Introduction

A recent Court of Appeal decision indicates that the courts will not shy away from imposing substantial fines for environmental offences.

Draft sentencing guidelines suggest that health and safety, corporate manslaughter and food offences will also receive stiffer punishment in future.

R v Thames Water and ‘very large’ companies

In R v Thames Water Utilities Ltd [2015] EWCA Crim 960, the defendant (Thames Water) pleaded guilty to an environmental offence following the discharge of untreated sewage from its pumping station. The defendant appealed the amount of the £250,000 fine imposed. The Court of Appeal dismissed the appeal, judging the amount appropriate, and stressed that they 'would have had no hesitation in upholding a very substantially higher fine'. In reaching this decision, the Court considered recent sentencing guidelines for magistrates and judges ('Environmental Offences Definitive Guideline'). These have been in force since July 2014 and relate to the sentencing of  corporate offenders who have committed environmental offences.1

Meaning of 'very large'

In order to provide a consistent approach, the guidelines set out ranges for fines depending on the size of the corporate offender, as assessed by the company's annual turnover.2 A 'very large' company is not a defined term in the guidelines, but they state that 'where a defendant company's turnover or equivalent very greatly exceeds the threshold for large companies [i.e. turnover over £50m], it may be necessary to move outside the suggested range to achieve a proportionate sentence'.

In R v Thames Water, the defendant had a turnover of £1.9 billion and profit of £346m so the Court was required to consider the meaning of 'very large' for the purposes of the guidelines. The Court of Appeal rejected the suggestion that 'very large' should cover any organisation with a turnover of £150m or more (on a three-yearly average). Instead, it found that 'it will be obvious that [the organisation] either is or is not very large' and that 'doubtful cases must be resolved as and when they arise'. The Court also referred to earlier proceedings in which Thames Water had been determined to fall clearly into the 'very large' category.

Determination of the fine

The Court of Appeal emphasised that the financial circumstances of the offender should be considered to ensure the penalty is proportionate and incentivises management and shareholders to protect the environment. Previous convictions which resulted from negligence or worse should count as significantly more serious aggravating factors. The Court gave the example of repeated operational failures, which suggest a lack of proper management attention to environmental responsibilities. According to the Court, serious offences could result in a fine 'up to 100% of the company's pre-tax net profit for the year in question', even if this exceeds £100m. In advancing this view, the Court drew a parallel to the level of fines seen in the financial services sector. 

Significantly, the Court of Appeal emphasised the importance of taking into account mitigating factors, which in this case significantly decreased the amount of the fine.3

Nevertheless, this decision is likely to encourage significantly higher fines for 'very large' companies that have committed serious environmental offences. It was stressed several times by the Court that fines have to act as a deterrent, and that they must therefore be adapted to the size of the company in question. For companies that fall into the 'very large' category, the ruling in this case raises a considerable degree of uncertainty regarding the level of fine that should be anticipated.

Draft guidelines for health and safety, corporate manslaughter and food offences

Draft guidelines for sentencing health and safety, corporate manslaughter and food safety and hygiene offences have been published by the Sentencing Council for consultation. The final version is expected to be published in early 2016. It is likely that new sentencing guidelines will be applied retroactively to offences, as has already occurred in relation to the guidelines on environmental offences.

The Sentencing Council stated in their press release that the review of guidelines is 'taking place in part due to concerns that some sentences imposed for these offences have been too low, particularly in relation to large organisations convicted of the most serious health and safety and food safety offences'. This is reflected in the consultation paper too: 'the Council anticipates that more serious offences committed by larger organisations would result in higher levels of fines'. There is a clear trend towards an increase in fines as part of a stronger deterrence system. But it is also made clear that, when imposing fines, the courts must have regard to the impact of the fine on (a) the offender's ability to improve conditions in order to comply with the law and (b) the employment of staff, service users, customers and local economy (but not shareholders or directors).

  • Health and safety offences: the consultation notes that penalties set out in the current guidelines are unduly harsh on smaller companies and that while a purely mathematical approach is not warranted, 'the largest fine is approximately 400 per cent of the smallest fine but the turnover of the largest organisation is around 90,000 per cent of the smallest organisation'. So the fines on large organisations should be set 'at a level that better achieves the aims of sentencing given the substantial means of these offenders'.
  • Corporate manslaughter: a fine will need to be consistent with what it would have been if it had been imposed following a health and safety offence leading to death. The current guidelines indicate that corporate manslaughter  fines 'will seldom be less than £500,000 and may be measured in millions of pounds'. However, under the draft guidelines the starting point for large companies is £5m, with a category range between £3m and £12.5m depending on culpability. For more serious offences, the starting point is £7.5m and a category range of £4.8m to £20m. For 'very large' companies, 'where a defendant organisation's turnover or equivalent very greatly exceeds the threshold for large organisations, it may be necessary to move outside the suggested range to achieve a proportionate sentence'.
  • Food offences: the draft guidelines indicate that courts should start by assessing the seriousness of culpability and consider the harm or risk of harm. They will then focus on the organisation's turnover or equivalent to reach a starting point for a fine within the category range, before finally considering aggravating and mitigating features. The starting point for 'large' companies is £10,000 for low culpability and low harm, but could reach up to £3m (for offences of very high culpability and harm). For 'very large' organisations the fines could greatly exceed such amounts.

Conclusion

It is clear that businesses committing offences relating to the environment, health and safety, food and hygiene or corporate manslaughter risk receiving much higher fines than previously expected. Businesses operating in these sectors should be alive to this. Please contact one of the named authors with any questions relating to the guidelines or if you are facing a claim.